Morning wrap: US stocks bounce as oil falls below US$100, ASX set to rise

ASX Futures (SPI 200) imply the ASX will open 41 points higher, up 0.57%.

US stocks managed to bounce overnight, China has locked down more than 51m people due to a new wave of covid infections, Chinese economic data smashed expectations, oil tumbles back below US$100 a barrel and the US delivers a smaller-than-expected rise in wholesale inflation.

Let’s dive in.

Stocks

• Major US indices staged a much needed bounce after getting dangerously close to February lows

• Sentiment was boosted by growing economic and political pressure for a Russian ceasefire. As well as a much needed pullback in oil prices, taking some heat out of inflation concerns

• 66% of US stocks advanced

• 66% of US stocks trade below their 200-day moving averages (67% yesterday, 68% a week ago)

• Several US airline stocks rallied more than 4.8% after raising first-quarter revenue outlooks. Most airlines anticipate little impact from the war in Ukraine

  • Southwest Airlines expects to be profitable for the last three quarters of the year

  • JetBlue said it was noticing strong demand for UK-US travel

  • Delta and Virgin reiterated the war will not impact North Atlantic travel

• Meme-stock and theater chain AMC Entertainment rallied 6.9% after buying a 22% stake in gold mining company Hycroft 

Economy

• China has some 51m people in lockdown after recording its highest case count in almost two years. Manufacturing hubs in Shenzhen and Changchun have been locked down in recent days, impacting manufacturers for household brands like Apple, Toyota and Volkswagen

• Chinese data economic data well-exceeded expectations, including:

  • Industrial production rose 7.5% year-on-year in Jan-Feb (versus est of 4.0%)

  • Fixed investment rose 12.2% YoY in Jan-Feb (versus est of 5.0%)

  • Retail sales grew 6.7% YoY in Jan-Feb (versus est of 3.0%)

• In the US, the Empire State manufacturing survey for general business conditions fell to a reading of -11.3 in March, down from a February reading of 3.1. The data was well-below economist expectations of a 6.5 increase

Commodities 

• Iron ore prices cratered as increasing covid cases in China has created demand concerns for downstream steel products and “promoting a bearish demand outlook”, according to Fastmarkets 

• Oil prices ease as a result of several factors including:

  • China’s lockdowns

  • Russia continues to sell oil (e.g. India is buying at a heavy discount)

  • High oil prices leading to demand destruction

• Gold prices eased as risk appetite improved overnight

#1 Tech

All the tech-led bounces we’ve seen this year have been short-lived. The Nasdaq desperately needed to bounce last night to avoid breaching late-February lows.

A lot more is needed to show that tech stocks have stabilised. 

March 21 and late-February lows acting as an area of support (Source: TradingView)

Notable overnight winners include: 

• Block +8.7%

• Affirm +8.1%

• Nvidia +7.7%

• Etsy +5.6%

• Tesla +4.6%

This should see some positive flow for local tech stocks in sub-sectors including BNPL, cloud and fintech.

#2 Travel

The US Global Jets ETF rallied 5.8% overnight as airlines celebrated the oil selloff and robust travel demand. The ETF is heavily concentrated towards US airlines, but also has exposure to international airlines including Qantas (ASX: QAN). 

Delta Air Lines Chief Executive Ed Bastian said “we’ve not seen a stronger demand … in my career,” Reuters reported. The Atlanta-based airline reported its highest ever ticket sales last week. 

The Jets ETF is now approaching a previous area of support. It will be interesting to see if the upbeat commentary from US airlines can push the ETF back above the $20 level.

US Global Jets ETF Chart (Source: TradingView)

The upbeat news puts local airlines and travel stocks on the radar. Most notably:

• Flight Centre (ASX: FLT)

• Corporate Travel Management (ASX: CTD)

• Webjet (ASX: WEB)

#3 Oil

Oil prices are down almost -30% from last week's highs.

"Supply shortage fears have somewhat disappeared as the Russians are still selling their oil and crude demand destruction fears are getting real. A temporary China slowdown was somewhat expected given their zero-Covid approach, but the Empire State index plunge could be a worrying sign if next month’s reading doesn’t rebound strongly," said Oanda senior market analyst, Ed Moya.

"WTI crude should find support ahead of the US$90 level, but if China’s lockdown spreads much further, the mid-US$80s would not be that hard to reach."

#4 Gold

Gold prices are collapsing in-line with the broad pullback in commodities, down -7.3% in the past six trading sessions.

"Gold prices are still heading lower even as bond market selloff takes a break ahead of the FOMC rate liftoff decision," said Moya.

"If the FOMC decision shows some policy members are holding back some rate hikes on the dot plots, gold could get its groove back and make a climb back towards the US$2000 level."

ASX corporate actions occurring today:

• Ex-dividend: ASB, BWF, DTL, EPY, ING, MCY, MEC, MNY, MTO, PL8, SHM, SSG, VG1, VG8

• Dividends paid: AAA, BFG, EGG, HGH LLC, PGG VGI

• Listing: MPG

• Issued shares: 360, ABB, ACB, AD8, AKN, ATC, BXB, CAI, CEL, EBG, ECP, ECX, ELO, ELT, HAS, ISU, LRS, MAY, MCT, MPG, NAB, OZL, PPM, PVS, RUL, SHP, SIQ, TAR, TWD, VBS, VMY, VRC, VTI, WBT

Other things of interest (all AEDT): 

• Canadian Inflation Rate (Feb) at 11:30 pm

• US Retail Sales (Feb) at 11:30 pm

• US Fed Interest Rate Decision on Thursday, 5:00 am